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How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much

In 2010, Germany produced more than 5.5 million automobiles; the U.S produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour. Yet Germany’s big three car companies—BMW, DaimlerDaimler (Mercedes-BenzMercedes-Benz), and Volkswagen—are very profitable.

How can that be? The question is explored in a new article from Remapping Debate, a public policy e-journal. Its author, Kevin C. Brown, writes that “the salient difference is that, in Germany, the automakers operate within an environment that precludes a race to the bottom; in the U.S., they operate within an environment that encourages such a race.”

There are “two overlapping sets of institutions” in Germany that guarantee high wages and good working conditions for autoworkers. The first is IG Metall, the country’s equivalent of the United Automobile Workers. Virtually all Germany’s car workers are members, and though they have the right to strike, they “hardly use it, because there is an elaborate system of conflict resolution that regularly is used to come to some sort of compromise that is acceptable to all parties,” according to Horst Mund, an IG Metall executive. The second institution is the German constitution, which allows for “works councils” in every factory, where management and employees work together on matters like shop floor conditions and work life. Mund says this guarantees cooperation, “where you don’t always wear your management pin or your union pin.”

Mund points out that this goes

against all mainstream wisdom of the neo-liberals. We have strong unions, we have strong social security systems, we have high wages. So, if I believed what the neo-liberals are arguing, we would have to be bankrupt, but apparently this is not the case. Despite high wages . . . despite our possibility to influence companies, the economy is working well in Germany.

As Michael Maibach, president and chief executive of the European American Business Council, puts it, union-management relations in the U.S. are “adversarial,” whereas in Germany they’re “collaborative.”

Does such a happy relationship survive when German automakers set up shop in the U.S.? No. As a historian observes in the article, “BMW is a German company and it has a very German hierarchy and management system in Germany,” yet “when they are operating in Spartanburg [in South Carolina] they have become very, very easily adaptable to Spartanburg business culture.” At Volkswagen’s Chattanooga plant, the nonunionized new employees get $14.50 an hour, which rises to $19.50 after three years.

The article’s author, Kevin C. Brown, asked Claude Barfield, a scholar with the American Enterprise Institute, why the German car companies behave so differently in the U.S. He answered, “Because they can get away with it so far.”

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This is a fascinating piece, I would note that there is a nearly identical situation with many European firms operating in the US. Ikea pays there Swedish workers much better than its US worker, the former are unionized and the later not. Similarly Fresh and Easy, a supermarket chain from the UK has a unionized work force back home and a non-unionized, lower paid workforce here.

However, what I think is telling is that BMW has shifted production out of Germany and Austria to its newer, lower salary operations is in the US, Mexico, China, and Russia. For example, in 2006, BMW’s operation in Mexico produced 1,500 vehicles but my 2008 it had increased to 100,000 (models X3, X5, 3, 5, 7, and Motorcycles). In contrast, its Austrian facility produced 114,306 X3′s in 2006 but only 82,863 X3′s in 2008.

So perhaps Germany is just slower at exporting their manufacturing to low wage locations than US corporations.

Actually working there and here in Canada I can tell you most of the answers here are leagues off base. The secret to Germans purchasing German products is very much one of national awareness. They know to buy German is to support Germany and therein themselves and their neighbours, period. They refuse to buy “junk” as witnessed in the never spoken of in North America’s media and absolute in its scale failure of Walmart within and especially in Lower Saxony which would very much have been the target market counted upon. Even those with the least disposable income available, Lower Saxony’s lower middle class workers, do not buy junk EVER nor foreign goods when a German product is available in that niche. Self realization on the topic of consumption is very much something Germans across their country are uniquely aware of in the Western world. They will always do without one thing in order to buy responsibly on another more needed. Would that fly in America or Canada for that matter? Absolutely not as we purchase with the immediate gratification of having “more for less” (sound familiar folks?) very much at the forefront of our consumption.

We have to comprehend a German Union and an American one also are only similar in their use of the word ‘union” in describing themselves. Slacking at a North American shop is deemed “sticking it to the man” whereas in German that is shamefully “placing the burden of your workload onto the shoulders of the worker after you” and collecting pay not deserved. Here in north America one can “cause” downtime by throwing a belt, in the case of mining as an example, while suffering merely a warming for such loss of productivity. Regardless of conduct and just shy of committing a criminal offence, the Unions in North America will intercede on their member’s behalf and see it as being “against” the wishes of the corporate entity on the matter. In Germany doing such is sabotaging the workplace and intolerance for such is absolute within the corporate entity, the unions involved and the government’s representatives on site. Try that three times in your working lifetime and you’ll need a new trade within Germany as the union steward himself will see you off the premises and out of the union entirely. The Union, governmental safety official and the controller of the corporation himself are all on the same page regarding their given industry’s health. A successful company requires a safe work environment and by providing such ingratiates itself to ITS’ workers who openly display their appreciation through stellar productivity. Let that last bit set in. In Germany, unlike anywhere else I know of, both the corporate entity and the workers themselves feel an attachment to each other and an awareness of the others’ well being. They truly see more in their relationship than merely dollars and cents.

To those trying to compare a North American Union to one in Germany, please don’t. The separation is far greater than any found in comparing apples to oranges.

Unions are not exactly the most popular in Germany – not just among conservatives and entrepreneurs – even many workers have left unions in recent years, as they don’t see a necessity to paying for the membership. After all, working conditions and pay are generally good, the worker’s council deals with issues within the specific company, and the unions add little value on top of that.

High efficiency, and high priced products ease the pressure of exporting production. A small car in a modern production facility takes about 30 man hours to assemble, while a super luxury car like an Aston Martin or Maybach take about 250 (or more, depending on options).

If the difference in labor cost is $20 on a car that requires 30 man hours for assembly, you have $600 per car.

This is a lot on a low cost product, but not for a more upscale, luxury product where quality and image are crucial.

Interestingly, VW not only pays workers less, they also downgraded the products they make in the US. Interior materials feel cheap, trunk hinges are exposed (vs. hidden on the German Passat), many upscale features aren’t even available. It becomes clear that outside of Europe, VW is focusing on competition with Honda and Toyota, and using Audi to tackle buyers with higher expectations.

Conversely, Honda sells Acura models in Europe as Honda, because the US Honda models would not be able to compete against VW in Europe.

I would just say to Alan, that he is right on here: “The Union, governmental safety official and the controller of the corporation himself are all on the same page regarding their given industry’s health. A successful company requires a safe work environment and by providing such ingratiates itself to ITS’ workers who openly display their appreciation through stellar productivity” which extends into why germans purchase german products. Its about loyalty and trust, which is greatly lacking here in the USA. The coined term 1% ers, says it all, and the inequality we all see, certainly does not engender loyalty or any initiative to work harder. Sad, and yet noting changes.

Indeed. We buy German simply because we are convinced that you get a high quality product, not because of “national pride” or because it “is good for the country”. It is a consumer educated decision. One of the major differences between a US customer and a German customer is that we buy a car with the intent to keep it (another difference is that people save up for it before buying it, rather than getting loans). Therefore, buying a car is a long term commitment. As such, you consider maintenance, durability, and possible repair costs in the future. Economically it makes much more sense to spend more on a German car upfront than getting a cheaper foreign car but spending a lot more in the long run on repairs. A US customer’s mentality and buying decisions are based on instant gratification: having something “new”, paying as little as possible for it, and tossing it after a couple of years for the next new model. The US economy relies on a “Wegwerf Gesellschaft”: a society based on buying, tossing, buying. A German consumer prefers to buy a solid, reliable, high quality car, that he will keep and take care of for a long time.